Import Crop Price Hits New Highs

With the global energy crisis leading to a food crisis, the prices of imported crops are soaring. The import price hike, which leads to a rise in households` spending on overall food and eating out, is expected to impose more burden on the people`s livelihoods already suffering from the oil crisis.

According to the Bank of Korea, the prices of agricultural, forest and maritime products in May rose 44.8 percent year-on-year, the highest in 27 years and five months since a 48.3 percent increase in December 1980.

The increase in May is higher than 43.9 percent of February 1998 when the financial crisis caused a rise in won-dollar exchange rates (the won fell). The import prices began to rise in June 2006 (1.3 percent) and have increased faster from 14.6 percent last January, 28.8 percent last December to 38.3 percent this April.

In particular, the prices rose as high as 28.9 percent this May even after considering the impact of the rise in the exchange rate. That means the exchange rate hike contributed to a third of the inflation and the rising crop prices to two-thirds.

The price of flour rose most with 127.5 percent year-on-year among agricultural and maritime products, while corn increased 75.6 percent and soybean 76.6 percent.

The international crop price hike is deeply related to the rise in energy prices such as oil.

As oil prices skyrocket and concerns about the depletion of fossil fuels are coming true, the world, led by the United States and Brazil, are competing to develop alternative energy by extracting biofuels from crops such as wheat and corn. The use of crops as a source of energy instead of food is causing the supply shortage.

Moreover, economic development in growing economies increased the crop demand, and even crop-exporting countries announced export bans to address their food crises, contributing to the crop price hike. Speculative crop funds of developed countries are also seen as the main culprit of the price increase.

The United Nations and the Organization for Economic Cooperation and Development released a joint report recently, saying, “Biofuel production and the rising demand in crops in China and India will continue to drive up food prices for at least a decade.”

The report released by the International Monetary Fund early this month said, “As developing countries have a far higher share of food costs than fuel costs, soaring food prices can deal a greater blow to people than high oil prices can.”

jarrett@donga.com